Pension scheme member’s option to use his fund to buy an annuity from any insurance company in the open market. The member is able to search for the best available annuity rate.

Aviation clause setting out the minimum acceptable qualifications for a pilot not named on the policy. A named pilot or one who ‘meets the open’ affirms to the insured that the pilot’s use of the aircraft will not invalidate the cover. It does not automatically give cover to the pilot under the liability section of the policy.

A ratio that monitors an insurer’s overall trading performance. It has three components: (a) the loss ratio, i.e. total losses and claims handling costs as a percentage of net premium income; (b) the expense ratio, i.e. underwriting expenses as a percentage of premium income; (c) investment income ratio, i.e. net investment income on funds contributed by policyholders as a percentage of net premium earned. The operating ratio is the result of deducting the investment income ratio from the sum of the loss ratio and expense ratio.
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The sum of the combined ratio plus investment income.

The risk of direct or indirect loss resulting from inadequate or failed internal processes, people and systems or from external events’ (Basel Committee on Banking Supervision 2001). The definition includes the legal risk but excludes strategic and reputational risk. It encompasses: ‘people’ risks (ineffective management); internal and external fraud; failure to comply with laws and regulations; damage to physical assets; business disruption through IT failure; transaction processing failures; and outsourcing weaknesses. The move towards operational risk management is FSAdriven. Firms will have to comply with the policy on systems and control from 2004. Financial businesses are able to insure against the risk by purchasing a ‘basket’ insurance, with fewer exclusions, over and above the more traditional insurances. The basket includes cover under: professional indemnity; directors’ and officers’ liability; broad form me and computer crime; unauthorised trading; employment practices liability; pension trust liability; organisational liability; broad form external fraud.

defines the class and nature of business covered by a specific reinsurance treaty.
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The clause in an Insurance Policy that sets out the circumstances in which the Insurers are prepared to make claim payments.

clause Policy clause that (subject to conditions) sets out the insurer’s responsibilities in terms of losses or events in respect of which he will have to provide an indemnity or payout under a benefit policy.

Opra supervises a range of legal requirements affecting occupational pensions including stakeholder pensions. It also supervises employers who make employer or employee payments into personal pensions. Opra can take action where carelessness or negligence could put a scheme at risk. It collects the levy that funds Opra, OPAS, and the Pensions Ombudsman while also running the Pensions Registry. The sale and marketing of personal pensions and stakeholder pensions is supervised by the FSA. In 2005 Opra will be replaced by the Pensions Regulator. See PENSION PROTECTION FUND.

Derivative financial instrument under which the payment of a sum of money gives a right, not an obligation, to buy or sell something at an agreed price on or before a specified date.

Term used in Practice Notes (IR12) to denote annual contributions payable to an occupational pension scheme by the employer on a common basis, e.g. a fixed amount or a fixed percentage of the payroll. Compare with special contributions.

Breakage (not associated with any named perils) of fragile cargo which is regarded as inevitable during transit. It is generally excluded unless caused by the vessel or craft being stranded, sunk, burnt or in collision. The Replacement Clause deals with breakage of machinery.